What is Manual Underwriting, and How Does it Work?

  • By Bryan Lee
  • Nov 04, 2022

What is Manual Underwriting

It’s no secret that banks operate on risk versus reward policies. Money lenders impose corresponding penalties on the loan conditions if an individual or group is likely to default on it. These include changes like higher interest rates, more required collateral, or denying the request altogether.

An unfavorable mortgage, which can stretch well into the decades, might be equivalent to a financial life sentence. So, how do banks decide which applicants are worth the risk? That's what the underwriting process is for.

What is Underwriting?

Underwriting decides whether a financial institution is willing to take on risk. By analyzing the applicant’s background, banks create a risk profile that tells them how likely it is for a borrower to repay a loan amount.

Computers primarily perform these risk calculations with little human intervention. This method is called automatic underwriting. People in good financial standing will pass this step of the approval process with minimal concerns.

However, a computer only analyzes information according to its algorithm. If an applicant believes they have circumstances requiring human consideration, it’s best to go with a manual underwriter.

Manual vs. Automatic Underwriting

Automatic underwriting starts by comparing vital information like credit score, income, and debt against a historical database of borrowers. The closer an applicant is to the profile of the average defaulter, the worse their chances are for a favorable loan.

By skipping this step, manual underwriting gives the applicant a chance to explain. There are many reasons why a person might have an unsteady income or lousy credit unrelated to their trustworthiness. These circumstances may not lead to approval, but it's a far better option than getting rejected instantly by the cold, raw data.

What Factors Does Manual Underwriting Consider?

Underwriters analyze risk profiles to predict if a borrower will pay off the mortgage loan or if there’s enough available collateral in the case of default. The best ways to influence a borrower’s risk profile are to:

  • Have a credit score above 700
  • Have proof of a stable income
  • Have a low debt-to-income ratio

How Manual Underwriting works

Meeting these suggestions is easier said than done, but they’re essential in securing your desired interest rates. However, borrowers can still refinance their mortgage if these factors change after securing the loan.

When to Request a Manual Underwriting Process

The standard choice for most banks and money lenders is to go with the automatic process since it's quicker and less expensive. Applicants in the below situations should speak up and request a meeting with a human underwriter.

Never Took on Debt

The lucky few who’ve reached adulthood without any debt might encounter a strange problem when applying for a mortgage loan. Ironically, one of the best ways to build a strong credit score is to take on debt and consistently pay it off.

This lack of credit will reflect poorly on the applicant's credit score and flag the application for denial. Manual underwriting lets a human consider this and decide based on the whole picture.

Unconventional Income

The US Bureau of Labor Statistics (BLS) has recorded over 9.6 million self-employed citizens as of August 2022. While this workstyle has many benefits, it also adds another step to mortgage applications.

Self-employed or contract workers frequently lack the recommended income history for mortgage loans. Their fluctuating earnings set off alarm bells during the automatic underwriting process. So, applicants lacking a fixed paycheck are advised to submit any documents proving a steady income stream dating back two years. These may include:

  • Business tax returns
  • Profit and loss statements
  • Business bank statements
  • Proof of additional income sources (disability, social security, etc.)

Bad Credit History

According to Credit Karma, the average credit score of US homebuyers this year is 725. That number is a long way from what most credit bureaus consider a "fair" score, and it's even in the upper end of "good."

While the average is 725, borrowers can get away with a score of 620 for conventional loans. Applicants below this benchmark must meet stiff requirements to avoid higher monthly payments. Negotiating these requirements is best done through manual underwriting.

The best option is to inform the underwriter that you plan to pay a higher percentage of the down payment. Preferably in cash. This information allows the underwriter to match you with lower mortgage loan amounts with better conditions.

However, not everyone has the funds on hand to dump into a more significant down payment. Adding a creditworthy cosigner to the application is a reliable method for improving its approval odds.

A cosigner can be a spouse, parent, sibling, or even a close friend willing to take partial financial responsibility. Remember that cosigning any loan comes with considerable risk. If the borrower defaults on payment, then the cosigner is required to make payments on their behalf.

What if Your Credit Score Drops During Underwriting?

Credit scores change constantly, and a little dip won’t suddenly cause an application to be declined or repriced. This is true all the way to closing.

The story changes if your credit score plummets due to missing payments or sudden increases in debt. At that point, the mortgage loan is in danger. Upon noticing the drop, the bank will repeat the underwriting process using the lower number.

The new mortgage loan will have increased interest rates and down payment requirements if your credit score drops below a certain threshold set by the Federal Housing Administration (FHA).


Manual underwriting is ideal for people ready to take on a mortgage loan but have extenuating circumstances. Dealing with another human allows applicants to present the whole picture and explain why they’re not as risky as the raw data implies. Positive factors like a large savings account or a new job can offset the perceived risks.

At the end of the day, whether it’s a computer or a human underwriter, applicants need to meet minimum standards to be approved. Jumping into a mortgage loan without the proper preparation and setup is financially dangerous and can lead to long-term consequences.

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